At present, the following U.S. banks have undergone liquidation or experienced collapse throughout the year: Silicon Valley Bank (SVB), First Republic Bank (FRB), Silvergate Bank, and Signature Bank. It is worth mentioning that the failures of FRB, SVB, and Signature Bank rank as the second, third, and fourth largest in U.S. history.
In contrast, Bitcoin has shown strong performance during this crisis. This can be attributed, at least in part, to the challenges faced by the banking sector, which have highlighted one of Bitcoin’s key advantages: users have full control over their digital currency and are not exposed to any risks associated with a third party. A recent report from Standard Chartered suggests that this narrative could drive the price of Bitcoin to exceed $100,000 by the end of 2024.
US Banking Crisis
A recent Federal Reserve report indicates that by the end of the third quarter of 2022, 722 banks in the United States were confronted with unrealized losses exceeding 50% of their capital due to increasing interest rates.
The Federal Reserve is presently confronted with a challenging task of navigating monetary policy amidst elevated inflation levels and the potential threat of a recession. In an attempt to curb inflation, they have implemented a strategy of increasing the federal funds rate, which represents the interest rate charged by banks for short-term loans between each other. This approach effectively raises borrowing costs, leading to reduced demand for goods and services within the economy.
With the most recent adjustment interest rates have reached levels comparable to those observed just prior to the onset of the GreatRecession in late 2007.
Bitcoin is surging during a financial crisis
Bitcoin is frequently regarded solely as an investment instrument, similar to stocks and shares. However, Bitcoin embodies the core principles of decentralized finance. Despite its growing acceptance and transparent nature, the primary cryptocurrency continues to grapple with volatility, which ultimately limits the extent to which people can place their trust in this digital asset.
Consequently, it is not feasible to assert that Bitcoin will imminently supplant the traditional centralized financial system.
Nevertheless, with the persistence of banking failures and economic crises, trust in Bitcoin and its adoption are on an upward trajectory. We can anticipate the emergence of additional financial ecosystems established on this decentralized network, greater integration of Bitcoin by traditional businesses, and increased adoption by consumers.
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